Samuels Says: Second charge is a second chance

Second charge is a second chance

If prospective and existing homeowners think they've got it tough in terms of securing a loan, they're not alone..

A similar scenario exists in the commercial lending market. Company directors, particularly of SMEs who are seeking to finance the growth of their companies, have few options available to them and are in a period of limbo.

Many big name lenders have made promises that they are committed to helping businesses, but risk aversion still remains the name of the game. Even government support for lending schemes could take years to filter through to businesses that are looking for funding now.

Thankfully, there has been plenty of innovation within the business finance space with a number of alternative lenders coming to market in recent years offering an increasingly viable alternative to the high street banks. I'm thinking about the likes of Funding Circle, Platform Black and Crowdcube.

Another alternative source of finance for businesses, and perhaps one much closer to home for brokers, is the second charge loan. Recent reports have highlighted a sharp growth in second charges, something that we have seen at Dragonfly.

So far this year, the most common use of a second charge loan has either been to fund a deposit for a buy-to-let or to inject cash into an existing business to provide the all-important funds that simply aren't coming from mainstream banks.

While it is clear that there needs to be sufficient equity in an applicant's home for a lender to offer a second charge loan, if there is, it can be a phenomenally quick and cost efficient way for someone to raise funds to invest in a business.

We have seen an increasing number of clients using second charges to fund their businesses where a straightforward remortgage is either out of the question due to a punitive Early Repayment Charge or if they are on an exceptional first charge loan rate that they don't want to lose.

For brokers with clients who run their own businesses, and who are exploring avenues to finance the next step in their development, the second charge is definitely a conversation they should be having — and soon. 




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